Sacked by the Kremlin after 18 years in power, the Moscow mayor 'who let his wife make billions'

Mr Luzhkov had become a powerful political opponent who openly criticised the Kremlin and then defied pressure to resign.

He had ruled Russia's capital since 1992 but angered Medvedev by suggesting the country needed a stronger and more decisive leader - a remark seen as favouring Prime Minister Vladimir Putin.

Famous for his working man's flat caps, billionaire second wife and his blunt manner, Luzhkov used the £24billion city budget to keep pensions and public services high, maintaining his popularity despite a series of corruption allegations.

In hiding: Elena Baturina and husband Yuri Luzhkov - long time mayor of Moscow until he was sacked last year - as seen as bitter foes of strongman premier Vladimir Putin

The clash was widely seen as a test of Medvedev's resolve ahead of the 2012 presidential election.

The Russian president broke off from a state visit to China to issue a decree stripping Luzhkov of his post.

Russian news agencies reported that Luzhkov was in his office when the news broke and found out about the dismissal through a television report.

'As the President of Russia I lost my trust in Yuri Mikhailovich Luzhkov as the Mayor of Moscow,' Medvedev told journalists during his visit to Shanghai.

'I will decide who will lead Moscow,' he said.

While Russia's constitution allows the president to sack the Moscow mayor and regional governors at will and appoint a successor without elections, senior officials almost always resign before they are fired.

Sacked: Luzhkov (left) has been shoved out of office by Russian president Dmitry Medvedev (right)

Luzhkov has not spoken publicly about his dismissal and was seen leaving the mayor's office five hours after the news broke.

It was later reported that he had submitted his resignation to Putin's United Russia party.

Only on Monday, Luzhkov, 74, had returned from a week's holiday abroad vowing not to resign of his own free will - a challenge the Kremlin could not ignore.

But Medvedev's choice of replacement appeared to suggest that Luzhkov had not lost out entirely.

The presidential decree named a long-time Luzhkov ally, First Deputy Mayor Vladimir Resin, as acting mayor of Moscow.

Resin has held the first deputy's job since 2001 and has responsibility for the city's construction sector.

Russian business daily Vedomosti last year published a photograph of Resin wearing a Swiss-made DeWitt Academia Tourbillon Differentiel watch in rose gold, costing more than £750,000 before tax.

Flamboyant: Luzhkov in a red t-shirt dancing with a group of large ladies, to support Moscow as a candidate city to host Olympic games

Luzhkov's tenure as mayor was tainted by repeated allegations that his billionaire construction boss wife, Yelena Baturina, benefited from his post - allegations that the pair strenuously deny.

Suggestions of corruption were a focus of mud-slinging programmes that state-run television networks showed suddenly this month after Luzhkov targeted Medvedev with thinly veiled criticism in a state newspaper article.

Luzhkov criticised the effectiveness of Medvedev's administration and said 'the Russian government needs to recover its true authority and meaning' in the article in the Rossiiskaya Gazeta on September 6.

'It has been unprecedented in the past decade for the internal tensions of the elite to become so public,' said Maria Lipman, an analyst with the Moscow Carnegie Centre.

'The question is whether the decision-makers can push their conflicts back behind the scenes.'

Flat cap was his trademark: Luzhkov attends a ceremony to start the construction of a new section of Moscow's underground railway

Controversial: Mr Luzhkov was lauded for modernising Moscow, with the help of his wife and wealthy construction company owner, Yelena Baturina (right)

The mayor's current term had been due to expire next June, but analysts said the Kremlin wanted to give a successor time to settle in and ensure a strong vote for the ruling United Russia party in parliamentary elections later in 2011.

Medvedev and Putin have said they will decide jointly who will run in a presidential election in March 2012, though most insiders believe the last word will be Putin's.

Appointed by Boris Yeltsin months after the collapse of the Soviet Union, the 74-year-old Luzhkov's time in office spanned the presidencies of Putin and his protege Medvedev.

Riding a wave of petrodollars, Luzhkov oversaw a construction boom that helped turn once-drab, grey Soviet central Moscow into a glamorous, vibrant, 24-hour capital for Russian business and society.

But the building explosion has left Muscovites crawling through some of the world's worst traffic and cursing a power grid that has suffered two big blackouts.

His control over coffers in the city, which accounts for one-fifth of the nation's GDP, allowed him to keep pensions and public services among the highest in Russia.

The decision appeared to have little impact on financial markets in Moscow, which had been widely expecting the move.